me too kwanza the pain i felt when calculating the KRA returns,that is when it hit me right where it hurts damn!!!!!!! click
so what do we do?

mtaa do wat?

if you have not already,you should join sacco.. in 1 yr you will have 480k... borrow 3times i.e. 1.44m and put this as downpayment for a 2 bed apptmt eg thika.... or mlolongo... live happily ever after

stop paying and wait to be thrown out it will only take u about two months

A saving of shs.40,000 is more than you need to own a house.

I build a temporary house in year 2000 with a salary of mere shs. 16000,a wife and a child. I put a saving of shs.6000 with a sacco and with time i managed to get a loan of shs 200,000. With this i bought a plot for kshs. 110000 and used the rest plus a litle more to put up a temporary house.

I later got a better job and managed to put up my dream house at a cost of 3.5M

Bro. you are young. If you are determined you can make it.


Jalofg

Methinks you should be glad you're renting rather than owning. As investors,we need to set emotions of owning a house aside and look at the raw data. So lets do the numbers.

To start with,you pay ridiculous interest on the mortgage,and you pay it upfront. You do not pay interest on rent. So lets say you buy a house for Ksh.6M and had no interest and lets say your monthly payment is 50K per month. It would take you 120 months or 10 years to pay it off. Now lets see what happens when you sign that mortgage for the same amount for 20 yrs at an interest rate of 15%. Now suddenly,your monthly payment has jumped from 50K to 79K and it would take you twice the amount of time to pay it off and also have to pay an extra 13M in interest on top of your 6M principal just to fully own your house after 20 years. At that rate,your house has to more than treble in value just to break even.

Then on top of that you have to pay homeowners insurance each year. Halafu there is the government and city tax. Maintenance expenses. I'm not sure how much these figures would be for a 6M house in Nai but you can imagine you will be paying much more than the 79K per month on your mortgage. So lets just say the expenses are another 3K per month.So over 20 years period with inflation this figure is another 1M.

Now lets compare to the renter,he does not pay any homeowners insurance,tax or maintenance fees. If anything breaks he just calls the landlord to fix it ASAP. So he still pays the 50K per month for the same place.

So lets compare:

20 years of home ownership: 20M

20 years of rental: 12M

The renter saves 8M over 20 years.

Now can you imagine what you could do with 8M savings over 20 years if you were investing this money in stocks? Lets just assume a modest return of 10% per year. Now calculate the compounded ROI of 33K per month(83K mortgage minus 50K rent). Your investment return could be worth 20M after 20 years. Now we know that the true cost is the opportunity cost.

Mortgage proponents argue that,but houses appreciate at a high rate so you get to build equity at the end of the 20 years which you can get by selling your house. To that I say good luck,houses have appreciated so ridiculously that if you bought a house now,forget getting the same appreciation in 20 years similar to what people who bough 20 years ago got in the last few years. Remember for you to break even,your house has to more than treble. And the renter still gets ahead of you by getting 20M after 20 years in form of ROI.

Not those are just the raw figures,how about other issues related to home ownership. What if you want to move because you have been IDPed,or your are moving on up,or you hate Nai,or for whatever reason. The renter can just up and leave,the only cost is the deposit. The homeowner has to list the property,pay commision to listing agents,incur closing costs. And then if you want to buy,you go through the same hastle with closing costs again.

Bottom line,paying rent is not throwing money away. The money the renster saves is enough for him to buy a house cash,or rent an extra 10 years for less money without extra costs. The renter can move at will without incuring closing costs etc. The homeowner and the renters are both renters,the former rents from the bank at a higher cost,the later rents from the landlord at a cheaper cost. And at the end of the 20 years,the renter has more money saved than the homeonewer.

Sorry for the long post,but I feel that mortgage is the biggest investment one can ever make so sober minds need to prevail. I invite homeonership proponents to shoot holes through my arguments using facts,not emotions.



When in doubt,follow the money.

TB-the differential on your comparison is no more than 4m because rent probably doubles every 5yrs in Nai.
The difference is even less when you factor in lifestyle changes. Once a dude gets married,lets assume in 10yrs time,he'll hama and rent out the joint. Finally,the capital appreciation over 20yrs is huge and I'd say no less than 5 times the buying price.

But the most basic thing you've ignored is that in Nai,its perfectly possible to buy plot and build your place within 5 or so yrs of aggressive saving and investing.

www.mjengakenya.blogspot.com

@TB,your argument misses a fundamental point. In Management Accounting we are taught to isolate irrelevant costs when making decisions. Rent is an irrelevant cost as you will pay it whether you rent or buy as you must live somewhere. Therefore your 79K mortgage payment is effectively 79K - 50K = 29K.
My personal experience,I took out one for a 2.2M house in 1999 when the repayment was 28K and the market rent for the area was 12K. Effectively my mortgage was 16K. Five years later,my repayment was still 28K,but the market rent had risen to 19K,making my effective mortgage 9K. Today the market rent is 23K,but I have since cleared the mortgage,so I have a free cash flow.
Skerians,don't fear mortgages,just make sure (like I did) you pay more than the agreed rate. The difference goes straight to the principal payment.
I also urge you to join a pension scheme. With the changes in the budget,you will be able to use your pension savings as security. This theoretically means you don't have to come up with the upfront cash payment required to get started - and this is significant as this can be as high as 1M for a modest house.

Thanks guys for your encouraging contributions. I Like sk guys!

Last night i was discussing the same issue with a friend,the following were the possible realistic options;

1. Buy a 2 bedroomed hse in a flat by Jan 2011 somewhere close to town at a cost of roughly 3M ( i don't know whether i can get one at that price). Make a down payment of around 1.8M ( i will have saved close to 800k and hopely,get 1M from stocks,my input into stocks as of now is 900k).
Then capitalise on the 18K + 40 K to clear the 1.2 M + interest within 2 years.

Going by this option,i would thereafter marry,continue to save and after 5 yrs,build (or buy ) and live in my dream house as i enjoy getting rent from my 2 bedroomed hse.

2. Buy a number of plots for say,3 yrs,and then sell some and built a house on one of them as some of you have suggested.The issue of concern here was the fact that i can easily be conned when buying plots.

Note that these were just suggestion,no conclusion has been made.

What i learnt from one of my uncles is similar to what Limuruboy has stated. Since you are still single,move to a cheaper house,that way you will be able to save more,after like 2-3 years you can buy a plot and start developing it to your dream house. As a kid i saw my uncle do this and cudn't understand why he could go that low as he was earning pretty well. Now i understand,he has a house in every town he has ever worked in. coz everytime he get's transferred he rents the house he is leaving behind as he moves to his new town of work,get's a small rental house as he looks for a plot to buy and develop and within no time he puts up his.


Jesus Loves me this I know,for the bible tells me so!

@Tusker Baridi; I feel compelled to ask you this,what is your current situation? Do you own the house you live in or are you renting? Do you live in Kenya?

Behind the gardens...Behind the wall...Under the tree (Including: Red...Dark Blue...Yellow)